Can BYD Build Its American Dream in Los Angeles?

BYD announced to launched the E6 to US market in 2010 but they have not started selling until now

In April 2010, Wang Chanfu, the chairman of Build Your Dream (BYD) Auto Company, stood alongside Los Angeles Mayor Antonio Villaraigosa and then Gov. Arnold Schwarzenegger to announce that the Chinese electric-car manufacturer was about to establish its North American headquarters in the city.

It was big news for a city still struggling with 12 percent unemployment. Wang said his company planned to launch its all-electric crossover vehicle, the E6, in the U.S. The new headquarters, he said, would swell to 150 employees by 2011. The plans didn’t stop there. BYD would roll out electric buses to local transport authorities as well.

But nearly two years later, BYD is barely open for business in Los Angeles. And the only BYD vehicles on the city streets are 10 F3DM sedans, a model the company launched four years ago, used by the Los Angeles Housing Authority, and one E-bus used by Hertz.

“Things like this are about planting seeds,” said Austin Beutner, former deputy mayor who made the first effort to attract the Chinese auto maker to LA. “Some grow fast, some grow slow, but you’ve got to plant them.”

BYD management concedes that it didn’t hire as many as employees promised. BYD Vice President, Stella Li declined to reveal how many people the company had hired in Los Angeles. But as a newcomer to the world’s largest auto market, BYD is attempting to be “a company with ambitious goals but conservative style when it comes to act,” said Li.

The slow start raises questions for both Los Angeles and BYD. The city put together a lucrative package of incentives to woo BYD in the hopes that the company would create jobs and possibly build a manufacturing facility. But now it’s unclear what the city may end up getting for its investment. While BYD initially appeared eager to use Los Angeles to spearhead its expansion plans in the U.S. auto market, its slow start is now prompting concern about how committed it is to selling vehicles in the U.S.

The delays in the operation and sales have led some to speculate that BYD’s move to Los Angeles might be more about building a brand image in China than gaining market share in the U.S.

“Why is the American market so important? Because selling a car here looks great back home. That’s a real key and signal that their quality is acceptable and high,” said Dr. G.E. Anderson, consultant and author of the new book, Designated Drivers: How China Plans to Dominate the Global Auto Industry.

BYD began in 1995 as a rechargeable battery manufacturer and one-stop handset component supplier in Shenzhen, China. Since tapping into the automotive industry in 2003, Wang--the BYD founder-- began to build his dream by integrating an automobile assembly line he had purchased. The U.S. media started to pay attention to this Hong Kong-listed company due to the investment from MidAmerican Energy Holding Company (MAEHC), a subsidiary of billionaire Warren Buffett’s Berkshire Hathaway Inc., in 2008 when MAEHC claimed to acquire approximately 10 percent of the group’s equity.

The city’s wooing of BYD takes on a symbolic importance. In the past few years, several prominent corporatations have chosen to shift their headquarters out of Los Angeles. In 2010, Northrop Grumman Corp., a Los Angeles-based aerospace company, left the region for Washington, D.C. Before that, Hilton Hotels Corp. of Beverly Hills also moved its headquarters to Washington, D.C. The reasons for going elsewhere for these companies: Tax benefits or other incentives.

“Los Angeles has long been a headquarters desert and becoming even more so in recent years. This company (BYD) will give the city much-welcomed bragging rights.” Rob DeRocker, a Tarrytown, New York-based economic-development consultant, said.

According to Beutner, the former deputy mayor, the city was initially off the list. To pull them back on the negotiation table, Mr. Beutner tried to dig up more resources to lure the company, including a showcase of BYD vehicles at Los Angeles International Airport and using Los Angeles’ unique star power to promote the brand. Of course, they also discussed location- another important component of marketing strategy.

“LA Live is the best place to promote our brand,” said Li, the Vice President of BYD, in her refurbished 30,000-square-foot office near downtown. The Los Angeles Convention Center is just a few blocks away. The Convention Center holds over 400 events a year, including its flagship event, the Los Angeles Auto Show, which accounts for 20 percent of annual revenue. Beutner said that the company expressed its willingness to join the annual auto show and to display some vehicle models.

Using $2 million in federal grants, the city’s blighted area now includes BYD’s headquarters. The Community Redevelopment Agency which is in charge of the renovation also provided a $2.4 million lease guarantee to the owner of the property in case the company leaves.

BYD can also benefit from being located in the "State Enterprise Zone," which will offer incentives to businesses that locate within it. According to the Community Development Department of Los Angeles City, incentives include employer hiring credits, sales and use tax credits, and net interest deduction.

By providing the lucrative package, the city hoped to convey a new, business-friendly attitude.

“It means more job opportunities but it also sends a powerful message to other companies that L.A. is the place to do business,” Mayor Villaraigosa said at the headquarters' grand-opening on Oct. 24, 2011.

According to Micheal Austin, the vice president of BYD America, the employment plan has been updated with plans to hire 100 people by the end of 2012, hoping to grow to at least 150 employees.

“We just missed the February Job Fair at USC as we were still planning. We will attend the next Job Fair in April,” said Li.

Instead of selling electric cars to the retail market, BYD has been focusing more on solar panels, batteries, LED lighting and IT services which have contributed the biggest component of revenue for the company in the U.S. “Next month we will announce a new 1-megawatt energy storage station program,” Li said. “And we are also providing battery products to some energy companies like Duncan Energy.” According to Li, the battery, electric reservoir and IT businesses are growing fast and most of the IT clients are based in California.

By taking advantage of its multi-business structure and building its brand through the automobile industry, BYD tries to pursue the best strategy while ensuring corporate profits from its older core businesses. However, to successfully build a strong brand, BYD may need something more solid.